Fiscal Fears Shake Markets as U.S. Yields Climb and Global Growth Data Disappoints

Daily Macro & Market Recap – May 22, 2025

In today’s global market recap, investor sentiment turned cautious following the US House’s approval of President Trump’s expansive tax-and-spending plan. The bill, forecasted to widen the federal deficit by $2.7 trillion over the next decade, raised renewed concerns about fiscal stability. Moody’s downgrade of the US’s final triple-A credit rating deepened market anxiety, pushing Treasury yields sharply higher and weakening the dollar. These developments shaped the global financial narrative for the day.

🌍 Global Market Recap Highlights Fiscal Pressure and Weak Risk Sentiment

Markets treaded cautiously on Thursday as global investors reacted to the US House’s passage of President Trump’s wide-ranging tax-and-spending proposal. Projected to expand the federal deficit by $2.7 trillion over the next ten years, the bill reignited concerns over debt sustainability and fiscal credibility. These anxieties were amplified by Moody’s downgrade of the last remaining triple-A credit rating for the United States. Yields on government bonds surged in response, with the 10-year Treasury holding near 4.6% and the 30-year yield exceeding 5%. This policy-induced volatility set the tone for global market behavior throughout the day.

🇺🇸 US Equities and Bonds Show Strain as Fiscal Risks Intensify

Wall Street closed the session with a mixed tone. While the Nasdaq recorded modest gains, the S&P 500 slipped slightly and the Dow hovered near flat. The broader narrative remains dominated by uncertainty surrounding future debt issuance and its potential to pressure rates further. Treasury yields remained elevated as fiscal caution deepened, and the US dollar lost value, weighed down by investor hesitance. Concerns over the long-term cost of the proposed budget package contributed to shifting capital flows and added fragility in currency markets.

🇪🇺 Eurozone Activity Contracts, Adding Pressure to Equities

In the Eurozone, investor sentiment took a hit after data showed a surprise contraction in private-sector activity. May’s readings reflected the worst service-sector performance in over a year, triggering renewed concerns over the region’s growth outlook. This coincided with a drop in European stocks and a rise in local bond yields, which were influenced by the global spike in borrowing costs. Despite the economic weakness, the euro appreciated slightly against the dollar, supported by diverging fiscal perceptions between the US and Europe.

🇬🇧 UK Budget Deficit Data Adds Regional Weight to Global Market Recap

UK stocks followed the global trend lower, with the FTSE 100 and FTSE 250 declining under the weight of rising bond yields and disappointing budget data. A higher-than-expected government deficit added domestic pressure, reinforcing fears about long-term debt management. In the bond market, the 10-year gilt yield climbed to 4.756%, reflecting growing investor skepticism. Yet, the British pound managed a slight gain against the US dollar, benefitting from broader currency adjustments rather than domestic strength.

🇨🇳 China’s Yuan Slide and Sentiment Strain Enter Global Market Recap

Chinese equities ended the day slightly lower, as trade tension with the United States continued to dampen investor confidence. The onshore yuan fell to its weakest level since 2007, marking a new low amid global realignment in currency expectations. While economic data remains relatively stable, risk appetite is constrained by geopolitical uncertainty. On the corporate front, Xiaomi’s announcement that it would begin delivering its new YU7 electric vehicle in July injected some optimism into the consumer tech sector.

🇯🇵 Japan’s Rising Yields and Weaker Yen Feature in Global Market Recap

Japan’s financial markets experienced moderate declines as investors grew more cautious about the country’s inflation trajectory. The yield on 30-year Japanese government bonds rose to 3.175%, approaching record highs and highlighting reduced demand among long-term domestic holders. At the same time, the yen weakened against the dollar, as markets weighed the Bank of Japan’s next steps in balancing inflation with monetary stability. Despite the global focus on the US, Japan’s own fiscal metrics remain under growing scrutiny.

🌍 EMEA Equities Decline as Yield Pressures Spread

Across the Europe, Middle East, and Africa region, market sentiment remained fragile. Rising US yields spilled into global bond markets, raising borrowing costs and reducing investor appetite for risk assets. Economic data in the region failed to lift mood, as inflation concerns and deteriorating fiscal outlooks dominated conversations. This synchronized repricing of sovereign risk points to a broader trend of tightening financial conditions, which is unlikely to ease in the short term.

🪙 Safe-Haven Assets Surge in Global Market Recap

Commodities and cryptocurrencies posted strong sessions, with gold gaining 0.3% to reach $3,303.92 per ounce. The metal is now on track for its best weekly performance since April as investors seek stability amid macro uncertainty. Meanwhile, Bitcoin soared to a record high, fueled by demand for decentralized stores of value in an increasingly volatile global financial system. Both assets continue to benefit from the erosion of confidence in traditional fiat currencies and government-led fiscal responses.